Progress towards full employment has stalled in the last six months, according to an economist who expects a flow-on effect to be reflected in changes to the cash rate in coming months.
Commenting on ABS Labour Force data at the end of last year, Dr Sarah Hunter, BIS Oxford Economics’ chief economist, said that looking at the labour market’s underlying trends, the workforce participation rate has fallen back as unemployment rates and underemployment rates both plateaued.
She forecast that wage growth is unlikely to reach 3 per cent year-on-year in the next 12 to 18 months, limiting the upward pressure on price inflation, and suggesting “a softer pace of growth in employment in the near term”.
As a result, Dr Hunter said she expects the Reserve Bank of Australia to cut the cash rate again early in 2020, taking it to 0.5 per cent.
“And if there are signs that conditions are deteriorating, we would expect the RBA board to implement further loosening (possibly including quantitative easing),” she concluded.